China Should Raise Fuel Prices, PetroChina Chief Says
China should raise fuel prices for the second time in less than two months as increasing crude costs widen processing losses, according to the chairman of PetroChina Co., the nation’s second-biggest oil refiner.
Prices “ought to be” adjusted now, Jiang Jiemin said in Beijing today. Global crude costs assessed by the government have exceeded the threshold for triggering revisions, he told reporters at the closing ceremony of China’s annual parliamentary meetings. Fuel tariffs last rose on Feb. 8.
PetroChina and larger rival China Petroleum & Chemical Corp. (600028) have urged the government to increase fuel prices to stem their losses from turning crude into gasoline, diesel and kerosene. The government, which limited gains last year to curb inflation, has more room to maneuver after consumer price growth fell to the slowest pace in 20 months.
“Sticking more closely to crude costs to determine fuel price adjustments is in line with what the government is trying to do this year,” Shi Yan, an analyst at UOB-Kay Hian Ltd., said by telephone from Shanghai. “Both the central government and the National Development and Reform Commission have made fuel price reforms a priority.”
Fuel prices may increase by as much as 400 yuan ($63) a metric ton, Liao Kaishun, an analyst with C1 Energy, and Yao Daming, head of the oil-product department at the Guangdong Oil & Gas Association, said separately by telephone from Guangzhou yesterday.
The NDRC, China’s top economic planner, raised fuel prices by 300 yuan a ton in February, the first increase in 10 months. Another increase this week would mark the smallest gap between adjustments since September 2009, when the government increased then lowered tariffs over four weeks.
China considers changing fuel costs when the 22-day moving average of Brent, Dubai and Cinta increases more than 4 percent from the last revision, according to a pricing mechanism introduced in December 2008. That average had risen 8.9 percent as of yesterday, according to Bloomberg calculations that assume equal weightings for the three grades. The government hasn’t said what weightings it uses.
China delayed price changes last year to cushion the impact on inflation, which exceeded a 4 percent annual target set by the government every month. Fuel tariffs rose by 550 yuan a ton in 2011, even though China’s fuel-pricing formula indicated they should have gained 1,500 yuan, the NDRC said Feb. 7. Consumer price growth slowed to 3.2 percent in February, the National Bureau of Statistics said March 9.
China set a target of about 4 percent for inflation this year that was higher than economists’ forecasts, leaving room for the government to “push forward energy-price reform,” Li Wei, a Shanghai-based economist for Standard Chartered Plc, said March 5.
The government is planning a new fuel pricing system that tracks crude costs more closely. Changes will involve shortening the pricing cycle from 22 days and switching some grades from the crude-assessment basket, the NDRC said Feb. 7. The new mechanism may be introduced when global crude prices fall to soften the impact on consumers, according to UOB’s Shi.
Brent crude rose to $128.40 a barrel on March 1, the highest level in nine months, amid concern that Western sanctions on Iran would lead to military conflict in the Middle East, the location of more than half the world’s oil reserves. It was at $125.97 today.
Losses from processing crude at PetroChina are still widening and “there’s no window to implement the new pricing mechanism yet,” Jiang said on March 5 while attending the opening of the National People’s Congress. The deficit at the company’s refining operations last year may be larger than the 50 billion yuan expected, he said then.
Global crude has risen more than 10 percent since the last fuel-tariff revision and “whether prices will really be adjusted isn’t up to me,” he said today.
To contact Bloomberg News staff for this story: Chua Baizhen in Beijing at email@example.com